Learning Unit 3
VALUE ADDED TAX AND
SOURCE DOCUMENTS
Learning outcomes:
• Explain what Value Added Tax (VAT) is and how the system works;
• Compare the VAT system to the traditional General Sales Tax (GST)
system;
• Identify standard rated, zero rated and exempt supplies, as well as
non-allowable items;
• Compare the two bases according to which vendors may be
registered for VAT.
• Explain what a valid tax invoice looks like;
• Differentiate between the various source documents used by the
business to record various transactions.
• Perform basic VAT calculations;
• Perform mark-up calculations.
Value Added Tax?
• VAT is tax levied on almost all goods and services provided,
• VAT (valued added tax), is tax incurred by each producer/distributer in the chain
of distribution/production, before reaching the end user,
• Only registered VAT vendors can charge and claim VAT,
• Voluntary vs compulsory VAT vendors,
• VAT vendor required to keep accurate records of all VAT transactions and report
to SARS on regular basis,
• VAT periods : depending on the value of the entity’s supplies, an entity can either
have a monthly or Bi – monthly VAT period. Other options 4 months, 6 monthly, or
annually,
• VAT rates – VAT can be charged at 0% (zero rated) or 15% (standard rated),
• To claim VAT input – the entity must be in possession of a valid tax invoice.
Value Added Tax
OUTPUT VAT INPUT VAT
• Tax charged on supply of • Tax paid by the entity on
goods i.e.. Sales by the items purchased/ services
entity or services received
rendered by the entity • SARS allows entity to
• This VAT must be paid claim back this VAT
over to SARS • Therefore it is an ASSET
• Therefore it is a LIABILITY
VAT CONTROL ACCOUNT
• A control account to Input and Output vat are recorded
or closed off to, to determine vat payable or receivable
from SARS
OUTPUT VAT – INPUT VAT = VAT PAYABLE OR RECEIVABLE
VAT SUPPLY CATEGORIES
Exempt
Standard rated Zero rated Non-allowable
Supply of these
VAT charged on goods/services are Although the
VAT charged on exempt from VAT
goods/services at business is
these • Life assurance
15%, claimable if: charged VAT
good/services at • Interest charged
• Supplier is a on the
0%, or received
registered VAT purchase of
Examples: • Renting for
vendor certain items it
• Petrol/diesel dwelling
• Received valid may not claim
• Basic food • Passenger
VAT invoice the input VAT
• Exports transport by
from supplier on these
bus/train/taxi
VAT BASIS
Invoice Basis Payment Basis
• Output VAT is paid in the tax period • Output VAT is paid in the tax period
during which the sale occurred/invoice during which the money is received not
is issued, regardless of whether the when the sale occurred
money is received or not
• Input VAT claimed in the tax period
• Input VAT is claimed in the tax period during which the money was paid and
during which the purchase not when the purchase occurred.
occurred/invoice received, regardless of
whether the purchase was paid or not • This basis is used by:
yet. ➢ Sole traders & partnerships with a
• Most businesses in SA are registered on turnover less than R2.5 million per year
the invoice basis, thus for this course we ➢ Associations not for profit gain
assume all businesses are registered on
invoice basis. ➢ Vendors with written permission from
SARS to do so
Source Documents: Tax Invoice
• An invoice is a document that records that a sale or services
has taken place, either cash or on credit containing specific
details required by SARS for VAT purposes.
• A full tax invoice is required whenever a supply total exceeds
R5000.
• If a supply is less than R50 then any other source document is
allowed
• If a supply is above R50 but less than R5000 then an abridged
tax invoice is allowed.
Tax Invoice
Source Documents
Source Document Purpose
Credit Note Records the cancellation of a sale or return
Cash Slip Used instead of a cash invoice, for sales lower than R5000
Cheque Counterfoil Portion in the cheque book which purchaser retains to make
relevant bookkeeping entries
EFT confirmation Confirmation of the EFT purchase made
Petty Cash Voucher Internal document used to record payments out of the petty cash.
Supporting source document to be attached to voucher
Journal Voucher Internal document used to record transactions in the general
journal
VAT Calculations
• VAT Exclusive + VAT = VAT Inclusive
100% + 15% = 115%
VAT Exclusive
VAT Exclusive Amount × 15/100 = Vat amount
VAT Exclusive Amount × 115/100 = Vat Inclusive Amount
VAT Inclusive
VAT Inclusive Amount × 15/115 = Vat amount
VAT Inclusive Amount × 100/115 = Vat exclusive amount
VAT Amount
VAT Amount × 100/15 = Vat exclusive amount
VAT Amount × 115/15 = Vat inclusive amount
Mark-up & Gross Margin
• Mark-up/Gross Profit: Amount added to cost price to
arrive at selling price
• Mark-up percentage: When the profit amount is expressed
as a percentage of the cost price
• Gross margin/ Gross profit percentage: When the profit
amount is expressed as a percentage of the selling price
